Copper price in decline

Copper, one of the few industrial metals to maintain its value in the current depression, has lost its shine and suffered steep reverses in recent weeks.

The metal recently reached a five-and-a-half-year low in dollar terms, caused mainly by Chinese speculators deserting their entrenched positions. At one point, copper hit US$1,830 per ton, and traders are suggesting it still has a long way to fall. (At the Commodity Exchange of New York, or Comex, high-grade copper was trading at a cash price slightly above US85 cents per lb.)

“I believe there is the potential for copper to fall another US$200 per ton because it has been overvalued for so long,” said Neil Buxton, analyst at Metal Bulletin. “It was always in the cards. Now, copper is behaving like the other industrial metals and the downside potential is significant.” Continued Buxton: “Conventional wisdom has it that, in times of surplus, prices must fall well below production costs and stay there for some months before cutbacks are taken.”

Copper has been late in reacting to the fall in demand caused by the recession and the alarming rise in London Metal Exchange (LME) stocks. The metal has been ignoring its fundamentals for some time and chart-watchers have been predicting its eventual downfall. But persistent Chinese buying buoyed up prices for the past year.

China is thought to have bought more than 300,000 tons of physical metal last year and taken futures positions on 500,000 tons. But according to market rumors, Chinese traders left themselves vulnerable by buying 85,000 tons of physical copper in December — enough to cover China’s first-quarter requirements for the metal.

Although the buying power of the Chinese traders has, until now, landed them large profits, the sudden fall in prices is reported to have hit their pockets hard, with losses estimated at as much as $80 million. “The Chinese left themselves exposed in the last few weeks and other speculators have being trying to force them out of their long positions,” said one dealer.

The concerted attack by speculators on the Chinese positions forced them to stop selling copper to keep their losses at a predetermined minimum. The fall in price triggered options-selling in New York and the contracts were off-loaded on a thin market with very little demand, further accelerating the price collapse.

Meanwhile, Western copper production is increasing. A record 8.92 million tons were produced in 1992 and production has not seen cutbacks this year. Also, an example of capacity increases comes from Chile where the ministry of mines expects copper production to increase by 10% both this year and next. — From Inter Press Service